How not to start a business. Part 4 When and how to wind down a business, and what I have learnt about it

So this is the 4^th and final instalment of this story.

This was not my first business venture, but it has been by far the most intense and the one where I have invested the biggest amount of resources, both financially and personally.

Had this venture be successful, it would have allowed me to square off my professional life with my, very peculiar, family life.

This fact has made me blind to some obvious facts during the implementation and the running of this venture, as to not allow me to look at the facts, and more than anything, the figures connected with the development of the business during the crucial planning phase.

So the first question is,  mistakes notwithstanding, was it worth it to pursue this business venture?

The answer is, as usual, it depends. If we look at the mere financial facts, my profit and loss , if you want, the answer is no. I might be old fashioned, but I believe that a business venture, in order to be viable, has one basic requirement: it needs to be able to consistently deliver margins. And it needs possibly to be scalable. This has never been the case for this venture.

My plan was never to make money by selling the business or to have “an exit strategy”.

The strategy was simple: deliver great products for great value and make my living put of it. Possibly while impacting positively my stake-holders, which were my clients and my suppliers in Latin America.

This turned out not to be the case.

As a matter of fact, when we go to the bottom line, I have not lost money, which is, per se, an achievement considering the time frame.

But, and this is a big but, I could not deliver consistent margins on the core product and I recovered my losses by making money on the futures.

This was inconsistent with the strategy I set for myself, and also very risky. Hence if I adjust the small return I have made for the risk I took on the paper markets, the financial results were not satisfactory.

The paper contracts were supposed only to cover, partially, the price exposure. Since I operated on specialty coffee, this is correlated with the future prices, but only so far: to use terminology that I am familiar with, my hedging activity was not real hedging and would not qualify as hedge accounting under IFRS, not even close.

And I did not want to be a paper trader. That was never my intention.

Reality is, I was so desperate to succeed that I took, against my better judgement, positions that were bigger, in volumes, than what I could source on the physical markets. As you might remember from the previous instalment, one contract is 37500 pounds, or 17 metric tons. I never delivered a load this big to any customer or group of customers. So in the end, I went long at a moment in which the price was particularly depressed, and I managed to close the position on a market blip. Good timing, but you cannot and should never run a business on luck, especially when said business is run using your own financial resources.

It’s all about cash

 Call me old fashioned again, but business, unless we are talking about really innovative venture, is about cash and cash flow. Conserve your cash, generate more. Or at least limit your losses.

If you see that you are not generating cash, especially if you weight it against the risks you are taking, it is better to quit. This might go against the most common mantra that says you should go all in. Well, that’s great if your financial shoulders are wide. In my case, and in a lot of companies I have seen, this is often not the case. And running out of cash can wreak havoc not only on your business, but also on your personal life. So my advice here, and the lesson I learned is:

1. Establish the cash you can afford to lose. If that is lost, quit.
2. Keep your business resources and personal resources strictly separated on a legal standpoint. Never give personal warrantees unless impossible to do otherwise and choose a company form that allows eventually the business to go bankrupt without you going bankrupt

I want to underline, as a point of pride, that I was not bankrupt. I wound down the business and paid all my dues to everyone involved, but if things would have been less fortunate, I would have only lost what I invested in the business. I cannot stress how many headaches this approach ahs saved me, both on this ventures and in past ones.

Ok you say, how did you really decided you had to quit if you were not even losing money?

I had a wake up call from my freight forwarder. The load I was waiting for got delayed substantially, and I had a substantial amount of working capital tied to it.I went into panic mode and started to reach out to the clients, who actually told me it was great because they were starting to feel the pinch of the impending lockdown.

Great. so it’s the virus fault? No. this was a symptom, not the disease. I realized that I was constantly skating on thin ice, and had very little margin for error. If the future market froze, as happens from time to time, or I would get a cargo rejected on quality issues (happened that also) or any unforeseen event would happen(a custom inspection and audit, an accident at the warehouse) I would have had little to no space for maneuver. Call me simple but I believe that is not a good way to run a business.

So when that happened, I decided this business idea had run its course.

So was it worth it in the end? As a learning experience, for sure. A bit of a costly learning experience, but it was worth none the less.

Reality is, not everyone is born to be an entrepreneur. I am regrouping and considering if this is really the answer for my future career. I have a few ideas I might test in the future, but I still need to internalize this one. Because of how much emotional investment I had put into it. So maybe another lesson is: Do not invest too much, especially emotionally, in your first few business venture, as most likely they are going to fail. Statistics on this are pretty clear.

A final word: corporate skills versus entrepreneurial life.

I worked all my life in finance, and in fairly big corporation. This has led me to develop a subastatial expertise in one area: finance. And this expertise applies mostly to running a big business.

This means that I am biased, albeit unconsciously, to think like a manager rather than an owner. The mentality is very different, and it is not a given that a good manager can transition to be a goond entrepreneur or vice versa. Also, I find all this talk of the importance of entrepreneurship in big corporations as a bit of hogwash. In a corporation you need people who are efficient and follow a process, or that are, at least, able to put a structure in place. As an entrepreneur it is very different. You must make things happen, no matter what. Making things happen “no matter what” can be a recipe for disaster in a listed company, as I have myself witnessed many times in my career..

On the other hand, as a finance manager, you tend to make mistakes that are due to your very vertical expertise such a spending too much time and resources on your core area (in my case: finance) without considering enough things you are not too versed into.

For example I structured my business so that, once it would grow, I could exploit the tax synergies connected to a certain structure. Which I never did since I never grew to that scale. So I could have started in a much simpler form, without initial tax planning and optimization, and then steer once the need arose.

Or I produced a very detailed and flashy business plan, although, not having any 3^rd party financial balking, I only did it for my own enjoyment (and there is something to be said about enjoying financial modelling in excel. I do. Hence I will refrain to comment)

To summarize, these are very different skillset, and whereas I gre up, professionally speaking, with the idea that you cannot be a jack of all trades, as a business person I had to become exactly that. Not easy, if you ask me.

 Conclusion: now what?

 This business is over. I have closed, paid my dues, I am licking my wounds and look forward to the next venture.

Where the next venture is going to be is a difficult question. I think I will go back to corporate world probably, as I am a firm believer that people should play on their strength. Also, as a committed husband and father, I have some very strong motivation to make sure that my family has bread on the table, figuratively speaking.

Would I go back to try an entrepreneurial venture? Yes, I probably would. I have the feeling I still have a bit to learn though, so next investment is going to be in education, mostly.Time will tell.

One thing is sure, stopping is not an option. Love you all.